Stock-based Compensation

March

14,

2017,

the Company’s Board of Directors (the Board) adopted, subject to stockholder approval, the Build-A-Bear Workshop, Inc.

2017

Omnibus Incentive Plan (the Incentive Plan). On

May 11, 2017,

at the Company’s

2017

Annual Meeting of Stockholders, the Company’s stockholders approved the Incentive Plan. The Incentive Plan, which is administered by the Compensation and Development Committee of the Board, permits the grant of stock options (including both incentive and non-qualified stock options), stock appreciation rights, restricted stock, cash and other stock-based awards, some of which

may

be performance-based pursuant to the terms of the Incentive Plan. The Board

may

amend, modify or terminate the Incentive Plan at any time, except as provided in the Incentive Plan. The Incentive Plan will terminate on

March 14, 2027,

unless earlier terminated by the Board. The number of shares of the Company’s common stock authorized for issuance under the Incentive Plan is

1,000,000,

plus shares of stock subject to outstanding awards made under the Company’s Third Amended and Restated

2004

Stock Incentive Plan that on or after

March 21, 2017

may

be forfeited, expire or be settled for cash.

For the

thirteen

and

twenty-six

weeks ended

July 1, 2017,

selling, general and administrative expense includes

$0.9

million and

$1.9

million, respectively, of stock-based compensation expense. For the

thirteen

and

twenty-six

weeks ended

July 2, 2016,

selling, general and administrative expense includes

$0.8

million and

$1.5

million, respectively, of stock-based compensation expense. As of

July 1, 2017,

there was

$5.4

million of total unrecognized compensation expense related to unvested restricted stock and option awards which is expected to be recognized over a weighted-average period of

1.6

years.

The following table is a summary of the balances and activity for stock options for the

twenty-six

weeks ended

July 1, 2017:

	Options
	Shares		Weighted Average Exercise Price
Outstanding, December 31, 2016		757,784	$	9.91
Granted		72,051		8.85
Exercised		1,269		6.36
Forfeited		26,795		13.45
Canceled or expired		8,320		11.27
Outstanding, July 1, 2017		793,451	$	9.69

The following table is a summary of the balances and activity for the plan related to time-based and performance-based restricted stock for the

twenty-six

weeks ended

July 1, 2017:

	Restricted Stock				Performance Shares
	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Outstanding, December 31, 2016		316,116	$	13.30		241,141	$	15.39
Granted		252,121		9.19		83,897		8.85
Vested		174,032		12.16		6,472		20.54
Forfeited		24,331		12.96		15,247		14.28
Canceled or expired		—		—		13,704		13.68
Outstanding, July 1, 2017		369,874	$	11.05		289,615	$	13.66

The total fair value of shares vested during the

twenty-six

weeks ended

July 1, 2017

and

July 2, 2016

was

$2.2

million and

$1.6

million, respectively.

March 2017,

the Company awarded

three

-year performance-based restricted stock subject to the achievement of pre-established consolidated total pre-tax income goals for fiscal

2017,

2018

and

2019.

These shares have a payout opportunity ranging from

25%

200%

of the target number of shares. In

2017,

13,704

performance shares issued in fiscal

2016

were canceled as the pre-established pre-tax income objectives for

2016

were

not

achieved.

The outstanding performance shares as of

July 1, 2017

consist of the following:

	Performance Shares
Earned shares subject to time-based restrictions at actual		6,325
Unearned shares subject to performance-based restrictions at target:
2015 - 2017 consolidated total revenues		50,000
2016 - 2018 consolidated total revenues		149,393
2017 - 2019 consolidated pre-tax income		83,897
Performance shares outstanding, July 1, 2017		289,615